Correlation Between Pro Blend and High Yield

Can any of the company-specific risk be diversified away by investing in both Pro Blend and High Yield at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Pro Blend and High Yield into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pro Blend Extended Term and High Yield Bond, you can compare the effects of market volatilities on Pro Blend and High Yield and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Pro Blend with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pro Blend and High Yield.

Diversification Opportunities for Pro Blend and High Yield

0.71

Correlation Coefficient

Pro Blend  High Yield

Poor diversification

The 3 months correlation between Pro and High is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Pro Blend Extended Term and High Yield Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Bond and Pro Blend is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Pro Blend Extended Term are associated (or correlated) with High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Bond has no effect on the direction of Pro Blend i.e., Pro Blend and High Yield go up and down completely randomly.

Pair Corralation between Pro Blend and High Yield

Assuming the 90 days horizon Pro Blend Extended Term is expected to under-perform the High Yield. In addition to that, Pro Blend is 3.85 times more volatile than High Yield Bond. It trades about -0.09 of its total potential returns per unit of risk. High Yield Bond is currently generating about -0.02 per unit of volatility. If you would invest  984.00  in High Yield Bond on September 17, 2024 and sell it today you would lose (1.00) from holding High Yield Bond or give up 0.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Pro Blend Extended Term  vs.  High Yield Bond

Pro Blend Extended

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pro Blend Extended Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pro Blend is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

High Yield Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Yield Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pro Blend and High Yield

The main advantage of trading using opposite Pro Blend and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pro Blend position performs unexpectedly, High Yield can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in High Yield will offset losses from the drop in High Yield's long position.

The idea behind Pro Blend Extended Term and High Yield Bond pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.